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Sw. franc loans draining councils

10 months after the government stopped councils from taking loans in Swiss francs, 26 councils still have them. 22 councils have dropped them – but with major losses.

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Danish local councils are counting their losses following speculation in Swiss franc loans that has cost them dear.

In 2012 alone, 22 local councils have cleared or refinanced expensive loans that in the case of 12 of them has given a total loss of DKK210 million.

Although the controversial loans were banned in February, some 26 councils still have them according to a Politiken survey of 95 of Denmark’s 98 councils. Just over half of the councils have at some time tried to speculate in Swiss franc loans or swaps.

Economy and Home Affairs Minister Margrethe Vestager says she is pleased that so many councils have refinanced the loans, adding that the new rules determine that in future council loans must be in Danish kroner or euros.

In all, councils took out Swiss franc loans totalling DKK5.8 billion, falling for the temptation to take out foreign currency loans that were cheaper than Danish loans at the time.

“As a council you look at all the possibilities in order to increase your funds,” says Sorø Council Mayor Ivan Hansen, whose council lost DKK7.8 million when the financial crisis made Swiss franc loans more expensive.

Fredensborg Council in North Zealand is one of the councils that is hanging on to its loans – and like others in the same situation is holding its breath, hoping for the loans to become cheaper.

Others have chosen to cut their losses straight away. Lolland Council, for example has lost a total of DKK120 million.

CBS Economy Professor Finn Østrup says the ban that is now in place may not be enough, and perhaps councils should be prevented from flirting with alternative financing.

“A council’s job is to provide welfare. That is drains and kindergartens and not advanced financial instruments entered into with financial institutions,” Østrup says.

Vestager agrees, saying councils should not be creative in handling their finances.

“Perhaps (they should be) less ambitious in how advanced things should be. The more advanced they are, the more difficult it becomes for counsellors to understand,” she says.

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